Whistleblower alleges Medtronic engaged in bribery scheme

For nearly a decade, sales representatives from a prominent medical device maker operated a bribery scheme at a Kansas veterans hospital that wasted millions of taxpayer dollars and jeopardized the lives of patients, a recently unsealed whistleblower lawsuit alleges.

The sales reps from the company, Medtronic, “bribed hospital staff to purchase its devices over those of competitors and to purchase grossly excessive inventory,” according to the suit.

In 2017, Tom Schroeder filed the lawsuit, United States ex rel. Schroeder v. Medtronic, Inc., under seal. The case became public at the end of 2022, when the government decided not to intervene in the case.

Schroeder said before this lawsuit consumed his life, he devoted his career to the medical device industry. For years he worked at Becton Dickinson, a direct competitor to Medtronic. At the time of the alleged kickback scheme, Schroeder was a sales manager at Becton Dickinson, but eventually ascended to the level of an area vice president, making him responsible for managing sales representatives in his region.

“We get into this industry to help people,” Schroeder said. 

But while working at one of his client sites – a small veterans hospital in Kansas – he said he learned about a scheme that had the opposite effect. Schroeder said rumors circulated that Medtronic sales representatives were bribing VA staff to purchase an excessive amount of the company’s inventory. These products were later used in medically unnecessary procedures on veteran patients, Schroeder alleged. He said the prospect of veterans being harmed is what motivated him to file this suit. 

“I had a hard time sleeping at night,” Schroder said. 

Medtronic, headquartered in Dublin, Ireland, is the world’s largest medical device manufacturer in terms of revenue. Shares of the company were up more than 12% year to date as of Tuesday’s close. Medtronic’s latest annual filing also shows it had more than $31 billion in sales – with the largest portion of that coming from its cardiovascular portfolio.

The products at the center of Schroeder’s lawsuit fall under the cardiovascular umbrella. 

“There’s a lot of money tied up in this business,” Schroeder said.

Medtronic declined an on-camera interview for this story. In a statement to CNBC, Boua Xiong, a Medtronic spokesperson, said the “allegations in this case are false, and Medtronic will continue to defend the litigation as it moves ahead.”

“If you read those text messages and you’re not pissed off and you’re not angry and you’re not sad for those veterans, I don’t know what to say,” Schroeder said. “That broke my heart.”

The Dole VA launched its own internal investigation in 2018 when its new medical director, Rick Ament, noticed the department that performed these procedures was spending an excessive amount of money.

Ament, who still works in the Department of Veterans Affairs system, declined an interview. CNBC obtained his nearly six-hour video deposition, which was taken in 2022 as part of Schroder’s lawsuit.

“The rough estimates early in the analysis showed that our costs were $5 million a year more than they should have been in this department alone,” Ament said in his deposition.

Ament’s investigation, which occurred independently and without knowledge of the lawsuit Schroeder filed a year earlier, found that the Dole VA was purchasing an excessive amount of inventory.

The veterans hospital purchased more devices than some of the largest veterans medical facilities, according to data the VA’s investigation gathered. 

“The foundational number that we were looking at was the usage compared to the largest hospitals in the VA, and we exceeded that by multiple folds,” Ament said.

The evidence Ament’s team collected was concerning enough to shut down the unit that performed these procedures, which it did in 2018, according to his deposition testimony. Ament also said he referred the case to the VA’s Office of Inspector General, or OIG, which opened its own investigation later that year. As of this month, the OIG said its investigation still has not been completed. 

Many of the documents gathered during the OIG’s investigation have recently been unsealed as evidence in Schroeder’s lawsuit. Internal Medtronic records the OIG gathered show dozens of pages of dinner receipts. 

“There’s a tremendous amount of activity here,” Ament said when he saw the receipts during his deposition. 

In Ament’s deposition, some of these itemizations were disclosed. In one of these outings, two orders of oysters at $34, three orders of filet mignon at $76, two orders of lobster tail for $84, a rib eye for $42 and halibut for $40 had all been expensed.

“This clearly gives the impression that influence is trying to be asserted,” Ament said in his deposition. 

According to the OIG’s investigatory documents, these meals were provided to hospital staff at the Dole VA as well as the doctors the VA contracted to perform atherectomy procedures. 

Medtronic also said that Schroeder has “admitted under oath that he has no firsthand knowledge of any problematic procedure involving Medtronic devices.” Evidence shows “the physicians performing these procedures … received no additional compensation for the procedure of using the devices,” the company said.

In a motion to dismiss, filed in November 2022, Medtronic wrote Schroeder was a “direct competitor” who “lacks sufficiently concrete factual allegations to plausibly claim medically unnecessary procedures occurred.” However, the judge found that the allegations of medically unnecessary procedures were sufficient because Schroeder said Medtronic’s employees had a financial incentive to promote the use of its products, even if those products were not medically necessary. 

“Anybody who thinks I’m a disgruntled employee just really hasn’t read the facts. Because when you read the facts, I think it speaks for itself,” Schroeder said. 

Schroeder also doesn’t think you can chalk up the alleged kickback scheme at the Dole hospital to a mere rogue sales representative. Schroeder alleges that this misconduct was visible to employees with leadership roles at the company.

“I was an executive with a competing company, so I have a distinct understanding of what’s visible to the higher-ups,” he said. 

Brendan Donelon, Schroeder’s attorney for this case, also pointed to this being a systemic issue. 

“These pretty grotesquely large dollar amounts had to have stuck out like a sore thumb.” Donelon said. “But you can choose to look the other way.”

Donelon said one of the most shocking aspects is that one of the sales representatives who allegedly perpetrated this kickback scheme at the Dole VA is still employed with Medtronic and selling products at other VA facilities throughout the country. 

“You can have policies on paper, but unless you put them into practice, unless you change your culture, it’s going to keep happening,” he said. 

CNBC spoke with more than a dozen former Medtronic employees, many of whom touted the company’s compliance system and said they were not aware of any improprieties. When asked how this alleged kickback scheme could have slipped through the cracks for nearly a decade, many said if Schroeder’s allegations were true, this alleged misconduct may have been inherited from companies Medtronic acquired because they had less rigorous compliance systems in place. 

In a statement to CNBC, Xiong said Medtronic has a “strong compliance and reporting program, including robust auditing and other internal controls in addition to an employee Code of Conduct.”

Douglas Winger, one of the Medtronic sales representatives named as a defendant in Schroeder’s lawsuit, won a Medtronic President’s Club award in 2016 for his sales. This annual recognition rewards Medtronic’s highest performers, who have demonstrated exceptional performance in meeting their revenue and growth targets, according to former employees. Many also said it’s the highest award the company bestows to sales representatives. 

“This is not something that can be overlooked or missed,” Schroeder said. 

Winger did not respond to CNBC’s request for comment. 

In a deposition for this case, Winger was asked whether he recalled receiving any training about the fact that purchasing meals for federal employees was prohibited. He responded that he did not recall any training during his time at Medtronic.

During his deposition, Winger also denied providing kickbacks at the Dole VA. 

Schroeder said he believes these veterans could be facing significant consequences. According to Medtronic’s labeling on one of its atherectomy devices, it lists some of the adverse outcomes as “amputation” and “death.”

“It enrages you,” he said. “These aren’t reversible. What’s done is done.”

The Dole VA’s investigation found that amputations among hospital patients increased sixfold during the period of alleged misconduct. However, the veterans hospital did not determine whether there was a direct correlation between the procedures and the rise in amputation rates. 

In a statement to CNBC, the VA said its investigation found a large increase of costs at the Dole VA were related to purchases of Medtronic devices. It also said “patient safety is our top priority” and “to date has found no quality of care issues.”

In a recent court filing, the VA said 59 veteran patients are having their medical records examined for “possible substandard care issues.”

ProPublica previously wrote about Schroeder’s lawsuit. In response to learning about the allegations of misconduct at the Dole VA, Kansas senators urged the VA to contact patients that these procedures may have impacted.

Due to privacy laws, the identities of the patients who underwent these procedures have not been made public.

Hodgson also said the science supporting atherectomy procedures is flimsy. Hodgson says he considers the clinical trials that Medtronic uses to market its products to be “fairly low evidence trials.” 

In a statement to CNBC, Xiong said that the procedure is a “safe and effective frontline therapy” and that its devices “demonstrated safety across multiple clinical trials.” 

Xiong also said Medtronic’s atherectomy devices are supported by more than 15-peer reviewed studies. This includes a study called DEFINITIVE LE, which Medtronic funded. Xiong said it is “the largest independently adjudicated study of an atherectomy procedure ever conducted.” 

The Food and Drug Administration approves all medical devices. One process for approval is called the 510(k) pathway. This fast-tracks devices onto the market, with no need for comprehensive studies to be done. Companies just have to prove their product is similar to ones already out there.

Medtronic received FDA approval for its atherectomy devices through this pathway. 

In a video deposition conducted as part of Schroeder’s lawsuit in February, Medtronic’s chief medical officer, John Laird, was asked whether the technology regarding atherectomy procedures was approved with definitive clinical data. He said that it was approved with data that was “good enough” to allow the FDA to clear the devices for use.

Laird declined an interview with CNBC. 

But in 2015, at the same time the lawsuit alleges these devices were being inappropriately used in veterans, Laird gave a presentation at a University of California symposium on vascular surgery, saying “the quality of data supporting the use of atherectomy devices” is “poor.” 

In a statement to CNBC, Xiong said, “Since Dr. Laird’s presentation in 2015, several additional clinical studies have been conducted.”

In 2021, the FDA issued a Class I Recall for one of Medtronic’s atherectomy devices. According to the FDA, this is the “most serious type of recall” because issues with these products can cause “serious injuries” or “death.”

The FDA reported 163 complaints, 55 injuries and no deaths reported regarding this device. 

In his 2023 deposition, Laird said showing the benefit of atherectomy over other therapies would require “500 or more patients” and cost up to “$50 million.”

When questioned about the fact that Medtronic makes billions each year selling these devices, Laird said “that’s not how it works.”

Medtronic’s latest annual filing shows it had nearly $2.4 billion in sales in part from devices used to treat peripheral vascular disease – nearly 8% of the company’s total sales for 2022.

Boua said the company doesn’t share device specific sales in its public filings.

–CNBC’s Samantha Woodward contributed to this report.

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